Staying put

European jobs are not coming back because few of them went in the first place

RESHORING IS LARGELY an American phenomenon. Although the migration of jobs to Asia has caused plenty of angst in parts of Europe too, the continent has little hope of wooing back many of the jobs it has lost. There are some signs that in Britain firms are starting to look for local suppliers in order to simplify their supply chains. But China’s importance as a low-cost supplier to continental Europe will continue to rise, for several reasons.

First, Europe’s labour markets are still fairly inflexible and costly, so even if conditions in China and elsewhere are becoming less favourable there is still a substantial labour arbitrage to be had. Second, European firms had been offshoring less in the first place. Cultural factors are partly responsible; Germany’s Mittelstand of mid-sized family firms, for instance, sell their products globally but are more inclined to make things in their own backyard, says Hans Leentjes, head for northern Europe of Manpower, an employment agency. Europe has a high concentration of family companies, and families tend to be more loyal to their countries of origin.

Companies in northern Europe are the most inclined to offshore, whereas French, Spanish and Italian firms have been held back by political and social pressures. Restrictive rules on firing employees mean that it is difficult and expensive to shut down capacity at home. So for the time being European firms, if anything, want to offshore more. Indian outsourcing firms hope that Europe will provide them with their next decade of growth.

Many European firms have exported jobs to countries in eastern Europe. German firms have sent work to a place even closer to home: former East Germany, where pay is still lower than in the country’s west. France Inc often looks towards Morocco and Romania. This “near-shoring” avoids some of the transport cost and cultural difficulties of sending production to places a long way from home, as many Anglo-Saxon companies have done.